Daily Musings and Music of a Euromarket Professional

Uncomfortable as it may be, being aware of sitting on a time bomb shouldn't keep us from being able to laugh about it - and to listen to some music!

Daily musings of a euromarket professional

Wednesday 8 August 2012

08 Aug 2012 – “ Pump Up The Volume " (M|A|R|R|S, 1987)

08 Aug 2012 – “ Pump Up The Volume " (M|A|R|R|S, 1987)

Uneasy open after a positive, yet off high close in the US (dragged by Europe anyway) and an about flat to positive Asian session. No major shoe dropping, however given the lofty highs Risk has reached, something good ought to pop up on the screens at some time, rather than a series of rather muted messages. Late afternoon / overnight titbits and cogitations were rather of the later sort: Grexit, as seen by Junkers (not good, yet manageable); Greece scrambling to get more savings to meet Troika targets; S&P outlook on Greece lowered to negative (Duh!); external pressure on Spain to go for a full bail-out; inner pressure to resist any further conditions (It’s not a game of chicken anymore, rather Angry Birds); Italian tensions and hopes not to get dragged down by Spain etc. etc. etc.
So equities off about 0.5%. EGBs down 1 to 2 bp, ahead of the German 10 YRS auction; Periphery a bit wider; Credit much wider than equities, actually, but having gone a little over the top in the rally of the last 10 days. EUR 1.2375. Commodities a touch softer from COB.

Data sets to open the day all on the disappointing side: German Exports and Imports both below forecasts (-1.5% after revised +4.2% and -3% after +6.2%, respectively) with the German Trade Balance at EUR 17.9bn nearing 5 YRS (and all-time highs). Spanish IP a little below forecast and down 6.3% after sharply revised lower 6.5% for May.  French Biz sentiment as expected at 90 after 91, continuing its steady monthly decline from a Jan 2011 high at 109 to renew with Summer 2009 levels. The BdF actually revised Q3 GDP outlook to -0.1%. Talking of growth, the BoE slashed its outlook, too.
Even if all these figures came pretty much as expected, one can only reckon that low is low.

Good German 10 YRS auction at 1.42% for EUR 4bn, of which 600m retained for market interventions. Over 6bn bids, of which over half at market price. No tail. Had closed at 1.47% yesterday and opened 1.45%, so the auction price was above market. Only a EUR 4bn auction, but bid to cover ratio of 1.8 the highest since Feb and Mar 2011, 3rd highest matching Sep 2010. Final link in the chain, but still getting a bid here. Last auctions were at 1.31% in July and 1.52% in June.
Corresponding with 10 YRS BONOs falling out of favour and wider by 10 into the 6.90s by late morning, as well as renewed short end weakness (+25 in 2s and 3s), after a tame start. Short end weakness in sync with Italy, but with only marginally softer BTPs, still holding a tick below 6%.
Closes auction supply in the EZ for the week, unless there was demand for Belgian OLOs via an option reverse inquiry (ORI) auction on Friday, which seems doubtful at this stage.

Noon levels about in the same vein. Germany giving back a tick or two of its gains, taken over by the Periphery. Credit weakish. Equities down 0.75% EUR down to 1.236. Commodities down 0.5%.
German IP down as expected 0.9% in June after +1.7% in May.

No further notable impact on BONOs of Spain now targeting a wider deficit (link) of 6.3% in 2012 and 4.5% in 2013 on GDP outlooks of -1.5% and -0.5%, as agreed early July with the EU. Nothing new.

US non-farm productivity on the rise at +1.6% (fcst 1.4%) and Q1 revised to -0.5% from -0.9%. Labour costs on the rise, too, at +1.7% (fcst +0.5%) and especially as strong Q1 revision to +5.6% (from 1.3%). Not sure the later is good news for future job creation. Nothing on the slate for later outside oil inventories and the US 10 YRS auction… Will drift.

Won’t help trading volumes…

Flattish to slightly lower US open. Drifting…

Bunds at 1.43% about flat to Friday. BKO and OBL back through Friday levels at -0.049%, as do OBLs at 0.40%.
Italian curve flatter on long BTPs trailing and overtaking Bunds, shrugging off the late morning soft patch, and Spain flatter on shorter end, albeit back from the wides, trading softer with 2s at 4.000% while 10s mostly held onto the Bund spread of 540.
Italian 10s 42bp tighter and Spain 31bp tighter from Friday.

Oil stronger on inventory data. Brent spiking near $113 and over EUR 91 per barrel (All-time high 94.15). Need to hold on onto your shoes in the Middle East…

New Issues summer drought persisting.

Closing levels:
10 YRS Yields: Germany 1,43% (-4); Finland 1,67% (-3); Luxembourg 1,72% (-3); Netherlands 1,73% (-3); Swaps 1,87% (-4); EU 2,00% (-5), Austria 2,05% (-3); France 2,11% (-4); EIB 2,18% (-7); EFSF 2,27% (-6); Belgium 2,52% (-2); Italy 5,87% (-8); Spain 6,84% (+2).

10 YRS Spreads: Finland 24bp (+1); Luxembourg 29bp (+1); Netherlands 30bp (+1); Swaps 44bp (unch); EU 57bp (-1); Austria 62bp (+1); France 68bp (unch); EIB 75bp (-3); EFSF 84bp (-2); Belgium 109bp (+2); Italy 444bp (-4); Spain 541bp (+6).

EUR swap curve 2-5 YRS 47bp (-2,0); 5-10 YRS 79bp (unch) 10-30 YRS 45bp (unch).
2 YRS German BKOs closed -0,049% (-1,2) and 5 YRS OBLs 0,40% (-4).

Main at 149 from 148 (+0,7%); Financials at 247 after 246 (+0,4%). SovX at 247 from 246. Cross at 578 from 582.
EStoxx Futures at 2431 / -0,3% (from 2439) with S&P minis at 1399 (+0,1% from 1398, at European close).
VIX index at 16,0 after 15,8 yesterday same time.

Oil 94,2/112,9 (WTI/Brent) from 93,3/111,4 (+1,0%/+1,3%). Gold at 1614 after 1613 (+0,1%). Copper at 343 from 344 (-0,3%). CRB at EU COB 304,0 from 303,0 (+0,3%).
Baltic Dry down a hefty near 3% to 812 at 836.

EUR 1,237 from 1,242
ECB deposits at EUR 317bn after EUR 312bn.

Greek bonds guesstimates: stable at 2023s at 24.25% and 2042s at 20.00%.

All levels COB 17:30 CET

Rest of this Week:
Light on data and supply. French production figures on Fri.

Germany: Fri CPI fcst unch +1.7% YoY
France: Fri IP fcst -1.8% after -3.5% Manu P fcst -2.1% after -4.3%
Periphery: IT Fri CPI fcst unch +3.7% unch // SP tomorrow House transactions
ECO US: Thu Trade Balance, Claims fcst +370k after +365k, Inventories fcst unch +0.3%; Fri Imp / Exp prices
Asia: CN IP fcst 9.7% YoY after 9.5%, CPI fcst 1.7% after 2.2%, Retail Sales fcst 13.5% after 13.7%

Click link on title or below for today’s musical support:
Given the strange market behaviour…and lack of volume…

Some more “Curiosity” coverage to spend some time…
... and hide that cat – otherwise…
As we’re talking of killing cats…
Even better! Grand Art!

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